A proposed new underground coalmine within the Sydney drinking water catchment will use "innovative" measures to reduce its environmental impacts but the state's watchdog isn't convinced.

The Environment Protection Authority said the Southern Highlands coalmine proposal had failed to adequately address the potential for water pollution and environmental risks, noting the proposal includes a "range of innovations" that are not widely used in the state.

The proposal received a total of 12,666 submissions, with less than 440 of them in support of the project.

The developer Hume Coal - a subsidiary of Korean steel-making giant POSCO - insists the "low-impact" Berrima mine will result in "negligible subsidence" through its innovative features.

These include using a mining system which leaves pillars of coal in place to avoid collapses in the mined-out void and returning all coal reject material underground to partially fill the voids.

The EPA said there is uncertainty surrounding these measures as they're not widely used across NSW

"These risks can create uncertainty in defining the environmental impact of the project in the short, medium and long-term," the EPA said in its submission.

The Nature Conservation Council also raised concerns, claiming the proposal failed to explain how the Sydney drinking water catchment would be unaffected by the mine.

In its response to submissions, released on Tuesday, Hume Coal said the mine design avoided "threats of serious or irreversible environmental damage".

It insisted the mine would not "significantly reduce" the quantity and quality of water in the catchment area and "great care" went into the design to ensure environmental and cultural resources were protected.

Hume Coal said the area is the only "significant source of high quality" coking coal in NSW which, if approved, it will extract along with thermal coal.

Project director Greig Duncan said the work undertaken to address concerns reinforced the "low risk and low impact" design of the mine.

Anti-coal community group Battle for Berrima says the proposal paints a "grim picture" for farmers and families reliant on groundwater in the area.

"These impacts on our water and landowners, that Hume Coal describe as 'significant', are simply unacceptable," president Ken Wilson said in a statement.

Hume Coal's response to submissions marks the next step for the project which will now be assessed by the Department of Planning.

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